British Energy welcomes the opportunity to provide
evidence to the Trade and Industry Committee's inquiry. We have
already submitted our views to the PIU Energy Review, and copies
of our various submissions are attached. The following responses
to the Committee's specific questions are drawn from that material.

BRITISH ENERGY

British Energy is the UK's largest electricity
generator operating eight nuclear power stations and a coal-fired
generating station at Eggborough. The Company also operates three
nuclear plants in the United States through a 50/50 joint venture
project with Exelon, and the Bruce nuclear power plant in Ontario,
Canada. British Energy is the largest private sector nuclear generator
in the world and in the process of developing a significant long
term renewables portfolio.

Given the imminent dependence of the UK on energy
imports, how can the UK maintain a secure energy supply? What
mix of fuels would maximise security?

The UK's current generation mix shows a healthy
balance with coal, gas and carbon free nuclear all making major
contributions, and an emerging renewable energy sector providing
additional carbon free generation. However these benefits, which
the UK has largely taken for granted, are set to disappear in
the next two decades as coal and nuclear all but disappear from
the mix. The result will be an overwhelming dependence on imported
gas sourced from Russia, the Maghreb or the Middle East. Since
the UK will be at the end of a long supply chain traversing areas
of political instability, there will be serious risks to supply
security, price stability and our ability to deliver the long-term
reductions in greenhouse gas emissions needed to combat climate
change.

Against this background BE believes that the
UK requires an energy policy which would establish a framework
which balances security, diversity and care of the environment
with price stability and competitiveness. Under such a framework
we would envisage that no fuel source should exceed 40 per cent
of the total mix; at least 50 per cent of fuel should come from
indigenous or reliable sources; and coal capacity should be retained.
Environmentally, around 50 per cent should come from carbon-free
generation sources such as renewables, hydro or nuclear. British
Energy has suggested for example that a mix of around 15 per cent
coal, 40 per cent gas, 20 per cent renewables and 25 per cent
nuclear by 2025 could deliver the right balance.

Since on current assumption by 2025 all existing
nuclear stations except Sizewell B will have closed, our submission
proposes a policy of "replacing nuclear with nuclear"
which would see the construction of replacement nuclear capacity
when today's plants retire.

Is there a conflict between achieving security
of supply and environmental policy? What is the role for renewables
and combined heat and power schemes?

Nuclear power is the only large scale energy
source which addresses both environmental and security of supply
concerns.

In our view security is the critical issue as
it facilitates all other objectives. Without security of supply
the other energy policy drivers, such as minimising the environmental
impact and providing affordable energy, are unlikely to be addressed
adequately. However, whilst security should be seen as a priority,
it needs to be tackled without compromising environmental objectives.
In this context, nuclear generation is the only large-scale technology
which provides enhanced security whilst helping to meet environmental
objectives.

The challenge for policy makers is to find a
means of achieving a balance in the energy mix which safeguards
supply security whilst enabling environmental objectives to be
met. British Energy has suggested for example that a mix of around
15 per cent coal, 40 per cent gas, 20 per cent renewables and
25 per cent nuclear by 2025 could deliver the right balance between
these competing objectives; that is 45 per cent carbon-free generation
and a diverse and relatively secure energy supply.

British Energy sees a growing role for renewables
(and indeed is investing in renewable projects), although their
intermittent availability and small scale seem likely to put a
limit on the contribution they can make in the short to medium
term. Likewise CHP has something to offer, although it is clear
that it has experienced difficulty in reaching existing targets
with certainty.

What scope is there for further energy conservation?

There has been considerable focus on the potential
for energy conservation for some time.

Clearly, a great deal of work is already being
donein particular the insulation of homes and the arrival
and marketing of more energy efficient appliancesbut it
remains challenging for governments to persuade the general public
and industry to use less power against a background of new, must-have
technologies and cheaper electricity. However energy conservation
will continue to develop as the barriers to achieving gains are
better understood and addressed.

What impact would any changes have on industrial
competitiveness and on efforts to tackle fuel poverty?

Any energy policy designed to achieve specific
security of supply and environmental objectives is likely to have
an impact on the price of electricity. It is likely that such
a policy will not necessarily result in the cheapest short-term
energy mix options. However the risks from an actual security
of supply failure or the perception that energy supply was not
secure could be catastrophic to our competitiveness and would
damage inward investment.

The proposed nuclear replacement programme described
in our PIU submission envisages new plant viable at an estimated
£25-30pMWh, leading to an economic gap compared to the current
post-NETA price levels of £18-20/MWh. Whilst the cost of
bridging this would need to be reflected in electricity prices,
the premium of £10 mwh envisaged in the proposed Carbon Free
Obligation Scheme would cost significantly less than the equivalent
quantity of renewables.

This might lead to a modest increase in electricity
prices. The Government needs to consider whether specific policies
should be put in place to protect those suffering from fuel poverty.

Is any change in Government policy necessary?
How could/should Government influence commercial decisions in
order to achieve a secure and diverse supply of energy?

Yes, we need to move to a policy in which diversity
and security of supply as well as delivering on our environmental
objectives is a priority of UK energy policy.

In the energy supply industry, based on DTI
projections, indigenous supply will fall from close to 100 per
cent today to around 20 per cent by 2020. British Energy therefore
believes that the UK requires an energy framework that balances
security, diversity, and care of the environment, with price stability
and competitiveness.

As set out in our PIU submission we would propose
an energy mix including a 25 per cent nuclear component, which
would be achieved by replacing our existing plant as they retire.
This would require 10 new stations by 2025 which could be funded
by the private sector if the necessary enabling actions were taken
by Government. In particular these could include a Carbon Free
obligation to include nuclear; changes to the climate change levy;
the introduction of US style "pay as you go" spent fuel
arrangements whereby nuclear generators pay a fixed amount of
$1MWh (equivalent to £0.7(MWh) for the electricity generated;
and the taking back of £3bn historic liabilities which cover
spent fuel from electricity generated by Government-owned nuclear
before privatisation. In return for this, BE would raise the £10bn
required from the private sector to finance 10 replacement nuclear
stations on existing sites over the coming decades.